Understanding Bonita Industries' Treasury Stock Transactions

Explanation:

Bonita Industries acquired 21,600 shares of its own common stock at $22 per share on February 5, 2020, and sold 10,800 of these shares at $29 per share on August 9, 2021. The fair value of Bonita's common stock was $26 per share at December 31, 2020, and $27 per share at December 31, 2021. The cost method is used to record treasury stock transactions.

The two accounts to be credited in 2021 would be the Treasury Stock Account for $237,600 and the Additional Paid-in Capital from Treasury Stock Account for $75,600. As a result of the cost method being used, the Treasury Stock account must be recorded at cost. The 10,800 shares were purchased at $22, which equals 10,800 * $22 = $237,600. So $237,600 has to be credited from the Treasury Account.

However, the amount realized from the sale was more as the stock was sold at $29. The difference, therefore, would go into the Additional Paid-in capital from Treasury Stock Account, which equals 10,800 * ($29 - $22) = $75,600. Therefore, $75,600 + $237,600 = $313,200. This $313,200 will be debited to the Cash Account.